Frequent Miler on the Air - Robinhood Gold 3%: Too good to last? | Coffee Break Ep06 | 4-2-24

Episode Date: April 2, 2024

Recently Nick wrote about a new credit card from Robinhood that will apparently offer a flat 3% back on most purchases. On this coffee break episode, we speculate as to whether or not this is too good to last. (0:30) - Robinhood Gold Card (and Gold membership) (02:37) - Read more about Robinhood Gold, the Robinhood Gold card, and the promo here: https://frequentmiler.com/robinhood-gold-card-to-offer-3-back-everywhere/ (04:21) - IRA match (06:57) - Amazing referral deal: actual 36c 10K Gold credit card or $1,100 with 10 referrals who sign up for Robinhood Gold and pay at least their first monthly or annual subscription fee. (11:57) - What about the whole Gamestop thing? (14:50) - Is Robinhood safe to keep money in? (15:50) - Is this too good to last? Visit https://frequentmiler.com/subscribe/ to get updated on in-depth points and miles content like this, and don’t forget to like and follow us on social media.  Music Credit – Beach Walk by Unicorn Heads

Here we go. This is not your typical Frequent Miler on the Air episode. This is a standalone segment we're calling Coffee Break. Each Coffee Break segment will cover a single topic related to miles and points. And each Coffee Break is limited to 20 minutes or your money back. Enjoy. Today's coffee break, Robinhood Gold 3%. Too good to last? Robinhood, the investment app thingy, has rolled out a new credit card that offers 3% cash back everywhere with no annual fee for the card. And on top of that,

they've got a really amazing promo on their gold service thing that gives you 3% on IRA transfers. And so Nick is going to get into the details of what that's all about. And then we're going to talk about, is this really going to happen? Is this going to stick around? What's going to happen with this? This could be as good as gold. We'll find out. Let's take a look at the background though first. So first up, the reason we're talking about this, the reason that this kind of drew everybody's attention is that Robinhood is launching a credit card, the Robinhood Gold Card. Now, it's not available yet, I don't think. You can just join the wait list right now in order to apply. And by the way, joining the wait list does not commit you to apply. You don't have to apply. It just puts you on the list so that you'll be able to apply.

Apparently, they're opening applications in waves. So this Robinhood Gold Card is coming out very soon, presumably, and is going to offer 3% cash back everywhere. No limit, no cap, 3% flat cash back everywhere, 5% back if you book travel through the Robinhood Travel Portal. That's a great cash back rate, right? I mean, for everywhere spend on bonus purchases, 3% back is like the new king of cash back, so to speak. So that's an excellent, excellent rate. There's no annual fee for the card itself. And we're emphasizing for the card itself because there is going to be a fee involved. So we'll come back to that in a second. There's no foreign transaction fee on this card either. So it would be a great card for spending both in the U.S. and abroad. However, it does require

Robinhood Gold membership. So even though the card itself doesn't have an annual fee, you do have to be a Robinhood Gold member. And currently, Robinhood Gold costs $5 a month for the Robinhood Gold service or $50 per year. Now, I want to mention that I wrote a post about this a couple of days ago. And when we first published it, I had indicated that the fee was higher than that. So that was a mistake. And I've since fixed that. So $5 a month or $50 a year for Robinhood Gold. Now, of course, they could change that fee structure at any time. That's the current fee structure for Robinhood Gold. So what is Robinhood Gold? Is it worth joining and becoming a Robinhood Gold member? Obviously, you need it in order to

get the Robinhood Gold card. So if you want the 3% back, then you would need it in order to get the Robinhood Gold card so if you want the three percent back then you would need it but there's some other reasons why you might be considering signing up for Robinhood Gold first of all it currently offers five percent interest so that's five percent APY on your uninvested brokerage cash via the cash sweep program so they sweep the cash to FDIC insured banks and and so you get five percent APY as a gold member. If you're not a gold member right now, it's 1.5% APY. Now, I should mention that in my app, I actually see 5.25% APY, and I'm not really sure why. We looked into it a little bit and saw that that may be a short-term promotion for new Robinhood gold members. Although I've had Robinhood gold for a while now. I joined a while back and I was just too lazy to cancel it. And so I've had Robinhood Gold for much longer than the 60 days. And for some reason,

mine's showing 5.25. So I don't know if it's going to go up and just hasn't been announced yet, or if it's just 5% for some reason they like me and are giving me a little bit more. But at any rate, 5%, 5.25%, whatever it is, that's a good rate on uninvested cash. It's worth mentioning that Webull is offering 5% also another online brokerage. So it's not the only game in town. And you don't have to pay for a gold membership for Webull's 5%. So I wouldn't pay for Robinhood Gold just for that, but it's a decent benefit to have. The more interesting thing for most people is going to be the IRA match. And so there's two components to this. If you have an IRA and you put your IRA or you create an IRA at Robinhood, then you'll get a 3% match on any contributions from 2023, if you're able to get those in before

April 15th of 2024, and also for your 2024 contributions to your IRA. So, you know, there are contribution limits to IRA. I can't remember the exact number for this year. It's somewhere around $7,000, a little bit less than that, maybe. Whatever it may be, you get a 3% bonus on that for your contributions, which is not bad. That could be a decent enough bonus for you. However, more interesting, I think, is that they are also until April 30th of 2024 doing a 3% match on any IRAs or old 401ks that you roll over transfer to Robinhood with no limit. There's no cap on that 3%, which could be pretty incredible for somebody who has a large IRA or a large 401k,

because we're talking, if you had a million dollars in one of those, a $30,000 bonus for transferring it to Robinhood, which is just- That's a heck of a bonus. Yeah. Wow. Yeah. That's a gold bonus right there. You're unlikely to spend enough on your Robinhood gold credit card for the 3% cash back to top that bonus. That should be the headline bonus right now, probably the 3% match for people who have a large IRA anyway. There are a couple of catches. You do have to keep Robinhood Gold for one year in order to keep that 3% match, and you have to keep the IRA or 401k money at Robinhood for five

years, or they'll claw that bonus back. So you do have to keep your money there. You have to have faith that that's going to be okay. However, if you do, then it's a huge bonus that doesn't count against your contribution limit. So that's pretty amazing for people who are able to take advantage of that. There's a couple other small benefits of Robinhood Gold. You can instantly invest up to $25,000. In other words, if you deposit money into your brokerage account today, you could deposit $25,000. And even though it takes a few days for to the money up to 25K. So there's a couple other small benefits, but those are really the benefits that are going to matter for most people, I think, that may be worth spending the $5 a month in order to get in on Robinhood Gold. And then last but not least, there's an incredible referral deal right now. So if you're able to refer other people to Robinhood Gold, the first 5,000 people

that get 10 referrals, that refer 10 people to sign up for Robinhood Gold and the waitlist for the gold card are going to get either a solid gold credit card, a 36 gram, 10 carat gold, actual Robinhood Gold gold card, or $1,100 in cash. It depends on whether you actually have the Robinhood Gold card or whether they've run out of gold, you know, solid gold, gold cards at that point. So you may end up with $1,100 in cash for 10 referrals who, again, each just need to sign up and pay for at least one month of Robinhood Gold and get on the waitlist. So 10 people, you need to find 10 people willing to spend $5 on their first month on Robinhood Gold and get on the waitlist. So you need to find 10 people willing to spend $5 on their first month on Robinhood Gold and sign up for the waitlist for the credit card. They

don't actually have to apply for the credit card in order for that to count. But big caveat here, it's only the first 5,000 people that get 10 referrals. And once that limit is reached, that's it. So if you've got nine referrals, the day that the 5,000th person hits their 10 referrals, then you're getting nothing for any of those nine referrals. So that's a huge bummer. But if you're able to do it, then it could be a pretty cool bonus. I mean, pretty valuable at $1,100, but I would love having an actual gold, gold card. I mean, that would almost get me to apply for this card like even if it wasn't a great card just to have the novelty of a gold gold card yeah the the like having a gold

like bar you know something like you see in movies like pirate ship movies and things but uh now we're talking about like some people would have these walking around in their wallets and boy, pickpockets would be really excited if they found one of these. Yeah, I mean, that would be a great day for the pickpocket, right? Except they would probably never know it because who would actually think that that card is made of gold? I guess it's heavy enough that maybe somebody would be like, well, what is up with this? Totally impractical. Of course, it's going to expire at some point. Then what do you do with it?

You're going to find somebody who wants to melt it down and get paid spot price, you hope. It's silly, but it's fun. Yeah. Oh, no. I think it's a really awesome idea, a really fun, exciting idea. But that thing about you wouldn't even know if you're the first 5000 that that makes me hesitate to try to do that at all. Right, right. Exactly. That's a that's a major hesitation point for me to it. And initially, I wasn't even going to write about this because I

was like, ah, that's so hard for people. And a lot of people are going to end up with nothing, they're gonna get three or four or five referrals and get nothing for it. So I was hesitant to even write about it. But then we talked about it because 3% cash back is a fantastic and be a good benchmark for taking a look at your earnings on other cards. Because if you're considering earning three or four or five points per dollar spent, then this is a great comparison point to say, OK, well, how much cash could I be earning with that spend instead? And so it helps you evaluate the quality of the return on other cards when you have a benchmark card like this.

And if it does last like this, would be the benchmark against which to compare. Right, right. And if you had this 3% cashback card and you had a 2X everywhere transferable points card, like the double cash or or several of the Capital One cards. There's a whole bunch of different ones. But then anytime you choose to earn two points per dollar instead of 3% cash back, you're sort of indirectly buying those points for one and a half cents each. You could think of it that way because you're forgoing three percent cash back so you you're you're you know three percent less you have three percent less in your bank account than than if you had uh used your three percent cash back card so anyway so um it it yeah it really changes the game as far as as which card to use for which circumstances and whether a 2x Everywhere card is worth it to you.

And at times paying one and a half cents per point actually makes a lot of sense. But if your point's rich or ready, it usually doesn't, I think, to make sense to keep buying them at that rate. Well, yeah. And when you think of miles like Avianca Life miles, they go on sale for like 1.22 cents every now and then. So if you're earning 3% cash back, you're earning like almost two and a half Avianca miles per dollar spent with a 3% back card. So obviously, it's going to vary as to whether that makes sense for you. And not every airline currency goes on sale at that rate. Who knows whether Avianca is going to continue to sell them at that rate. But the bottom line is that you really do have to think about your opportunity cost if you use a card other than a 3% card,

if a 3% card exists on the market. Yeah. Yeah. All right. So Robinhood. So Nick wrote this post about this 3% card and gold and everything. And I'm sitting here not knowing a lot about it. My first thought is Robin Hood. That's the guy in tights that steals from the rich and gives to the poor. I'm not sure how sustainable that is. But I don't think that's her business model. I did see...

Unclear, unclear. It's unclear about that. My other thought was i i had watched this movie called dumb money which was about that time that uh a bunch of uh young traders were were running GameStop's stock to unprecedentedly high amounts for two reasons. One, they thought it was a legit undervalued stock. But two, there were some major Wall Street traders that had sold short on GameStop in a big, big way. And they were basically putting them like making them broke, basically. And in the Dumb Money movie, Robin Hood plays a part because and this this is what really happened a few years ago. All these all these small traders were driving up the stock, and it was very, very exciting, heady times.

People were seeing their money quadruple and way more than quadruple, actually. And then all of a sudden, Robinhood stopped allowing any buys, stopped allowing people to buy GameStop stock. Eventually, they opened it up again, but it caused a lot of anguish. It appeared to be driven by those big Wall Street trading firms that were being hurt by this. That was the exterior appearance of what was happening and that Robinhood, who's supposed to be helping the poor instead of the rich, seemed to be doing the opposite. Now, Robinhood, the company had what sounded like a good excuse for why they had to do it. They have to, according to them, have a very large amount of capital on hand in order to support these trades, and they didn't have that much capital. It was like billions of dollars they needed. And so I'm not qualified to say whether

that was true or not, but that was their explanation for what happened. So basically, I don't know. As far as I know, I think there might even be lawsuits ongoing about that whole situation, but that's just something I keep in mind. So I Googled, is Robinhood safe? If you want to put money in Robinhood, is this safe? And so I'll just say what Investopedia said. Investopedia says yes, they're safe. They say Robinhood is a member of the Securities Investor Protection Corp. That means that any loss of investor securities and cash held by Robinhood is protected up to $500,000. This includes $250,000 of protection for cash holdings. Robinhood is also regulated by the U.S. Securities and Exchange Commission, and Robinhood offers added financial protection per customer account of up to $1.9 million for cash and $50 million for security. So anyway, Investopedia says, yeah, it's all right. So that's the background, the five-minute research I did before this coffee break. So let's discuss, is this going to happen? Is this going to stay around? What's going on? I mean, my major hesitation here was that, is it actually going to happen? I think that's the big

thing, right? I mean, they've got a wait list, but is, are they actually going to launch this thing? They bought X one. And so X one, if you may, you may remember had launched with, you know, great way to earn three X everywhere. And it was awesome for a hot minute. And then, you know, they started taking away benefits until it became totally irrelevant. So I fear that the same will happen with this. But I mean, it might be worth striking while the iron is hot, particularly if you have a lot of big spend and you don't want to spread it over a bunch of different accounts. I mean, keep in mind, there's no welcome bonus here. There's a referral bonus potentially for 5000 people. But otherwise, there's no welcome bonus. So you're giving up the opportunity for that.

But if you got tons and tons and tons of spend, I mean, this could be a good place to put it if it happens. I don't think there's much risk. I mean, you're risking $5 or $10 or $15, whatever it is you're going to pay in order to keep Robinhood Gold to wait around for the card to become hopefully available. So it's not a huge risk, but I don't think it's going to probably last at 3% forever. What about you? Yeah. Well, so here's the risk is that it's another card on your account that if you're trying to stay under 524, so you could sign up for Chase cards or Bank of America's rules,

things like that, then this will count against that and it has no welcome bonus. So you're signing up for a card in order to get a small amount of extra cash back per dollar spent, which by the time, if it doesn't last long, by the time it unlasts, you might not have earned as much as a simple welcome bonus that you could get on any of dozens and dozens of cards. So that's a risk. But the upside is, yeah, maybe it'll stay around. Now, I guess that gets to the question of, is it possible that it's sustainable like you mentioned x1 that you know they started off with a model where uh you were sort of getting three percent back everywhere then they kept changing what everywhere meant because obviously they were losing money and it

wasn't working for them um no one else has come out with a 3% back everywhere card. How can Robinhood do this long term if no one else can? Yeah, I mean, I don't think they can. So I don't think it's going to last forever. This is one of those things that you get in on if you're confident you're going to hit it really hard while you can because you've got like a lot of spend coming up but i don't think it'll last long term i'm like even the three percent match on the iras is like that's a crazy amount of money they're potentially giving away although there probably aren't a crazy amount of people taking advantage of it so i don't necessarily think that that three percent match is unsafe or unsustainable it's only available

until april 30th anyway, but they couldn't do that forever. So I don't know. I mean, I would bet on it lasting at least a year. Over, under any year, Greg? What do you think? Oh, boy. Yeah, I'd say a year sounds about right. So slightly over, but not much over.. I'm only saying that because it's gotten so much news. They'll feel like they almost have to, but it's not going to last. So I'm not, I'm not going to waste my time on it. I don't think. All right, there you have it. There's Greg, the frequent milers final word. If you enjoyed this coffee break, don't forget to sign up for our email list so you can get our posts in your inbox at frequent miler.com slash subscribe and check out our full length frequent miler on the air episodes on all your

favorite podcast platforms. Bye everybody.